The Power of Local Economy Multipliers: Synergies between Social Protection and Agricultural Interventions in Malawi

On 31 May 2018, the International Labour Organization (ILO), Food and Agriculture Organisation of the United Nations (FAO), United Nations Children’s Fund (UNICEF) and the Government of Malawi co-organised the ‘The Power of Local Economy Multipliers: Synergies between Social Protection and Agricultural Interventions in Malawi’  webinar.  The event contributed to discussions on the synergies between alternative social protection and agricultural interventions in the sub-Saharan region, specifically in Malawi.

The event was moderated by Luca Pellerano (Advisor on Social Security, ILO Zambia), who was joined by presenter Justin Kagin (Owner and Founder, Kagin’s Consulting), and discussants Noemi Pace (Economist Consultant, FAO), Lukes Kalilombe (Deputy Director at the Ministry of Finance, Planning and Information, Government of Malawi), Dominic Nkhoma (Chief Economist, Ministry of Agriculture, Irrigation and Water Development, Government of Malawi).

The recording is available here and the presentation here. The paper that guided this presentation is available here, and the policy brief here.

 

The Power of Local Economy Multipliers: Interventions in Malawi

The study

Justin Kalilombe kicked off the webinar by introducing an evaluation of the synergies between social protection and agricultural interventions in Malawi. The aim was to establish what the most effective policy scenario would be for:

1. Supporting the poorest households
2. Increasing agricultural production
3. Stimulating economic growth
4. Reducing poverty and inequality

 

Methodology

Kalilombe began with a description of the methods employed to evaluate the connections between the fields of agriculture and social protection – the Local Economy-Wide Impact Evaluation (LEWIE) and the Cost-Benefit Analysis (CBA).

The LEWIE approach tackles monitoring and evaluation by considering the impact of Social Cash Transfers (SCT) and other social protection programmes in the community in which they are employed, taking into account households that are not included on any programmes. Hence, this process evaluates the impact of programmes not only for targeted beneficiaries, but also for the community, given the trickle-down effects of cash or in-kind transfers in the local economy.

 

 

 

 

The LEWIE analysis of Malawi was concentrated on five different programmes:

• Two social protection programmes: the Social Cash Transfers and the Public Works Programme (PWP)
• Three agricultural programmes: the Fertilizer Input Subsidy Programme (FISP), and Irrigation and Extension programmes. 

For each of the LEWIE simulations, special attention was attributed to the income effects of the programmes, the production effects, and the CBA. This included the CBA of all combined programmes as well as the administration and other costs associated with the programmes.

 

Findings

The study found that most of the benefits of the programmes were not enjoyed by the beneficiaries, but by non-beneficiaries, thanks to a multiplied effect – those who owned more crops and livestock benefited more than those who owned less.

i. The study on the SCT’s provided the following data:

• It confirmed that cash transfers have a direct impact on the real income of the beneficiaries, and that they create large income spillovers. 
• Despite being targeted mainly to the ultra-poor, these transfer programmes allowed for an increase on the production of crops, livestock, retail, service and production goods.
• This entails that most of the SCT spillovers are directed to households that are not eligible for cash transfers.

 

 

ii. The evaluation of the PWPs revealed the following:

• It was demonstrated that there wasn’t a major difference on the real income multiplier, when compared with the SCT. 
• The cost-benefit ratio is much higher for the SCT’s than for the PWP’s, especially due to the second programme’s higher cost.

 

iii. The evaluation revealed that FISP had the following impacts:

• The study confirmed that FISP has a higher crop production multiplier than the SCT, especially when accompanied by an upgrade in technology.
• It stimulates beneficiaries’ households by expanding crop production
• Simultaneously, non-beneficiaries households reduce their crop production.
• This is because when production expands, prices go down, making the activity less attractive for non-beneficiaries, influencing them to migrate to other activities.
• Depending on the way in which the programme is designed, it may provide high rates of cost-benefit ratio.
• If the targeting process is flawed, it may result in low cost-benefit rations. For instance, when the FISP is only targeted towards the wealthy population, who already possess land, and not the poor, there have been indications of negative spillover effects.

 

 

• FISP incites crop production in all scenarios, increasing both nominal and real incomes of the targeted households.
• FISP targeted households are moved to the category of “productive farmers”, due to the increase in production and income after being targeted by the programme. 
• When subsidies made available by FISP are invested in technology, real income and the cost-benefit ratios increase.
• However, contrarily to what was presented in the analysis of the SCT programmes, non-targeted households may not benefit from the inputs of FISP, given that subsidised inputs stimulate crop production and drive down crop prices, a process that negatively affects crop producers who are not beneficiaries of the subsidy.

 

 

The LEWIE model allows for a cross-comparison between two different programmes, generating Combined Policy Options, that may indicate a better way of harmonising policies and coordinating the budget. The combination of different social protection programmes also provides a higher cost-benefit ratio:

 

 

Conclusions:

• Cash transfers alone have a significant cost-benefit ratio.
• When cash transfers are combined with both the SCT and the FISP, the real income multiplier goes from 1,88 to 3,01, and the cost-benefit ratio goes from 1,59 to 2,40.
• The results of a combined programme approach were indicative of a process of technological change (whether from FISP, PWP rural assets, Irrigation and/or extension services), which enhances the impacts of protective policy interventions such as SCTs and PWP transfers.
• The interventions that raise agricultural productivity lower food costs, and this has positive real-income effects for poor households.
• Fully overlapping approaches (SCT+FISP) can have a larger impact than their non-overlapping counter-part.
• Furthermore, SCTs, which increase food demand, create new markets for food production stimulated by productive interventions.